Day 1, 2015 Conference Will the Price Be Right?

Day 1, 2015 Conference – Will the price be right?

Teresa Corbin: We've actually now got a panel headed up by Alan Kirkland, the CEO of Choice, so I will hand it over to him and invite the panel to come up.

Alan Kirkland (TC?): We have another video to play in the background from The Checkout, which is entirely appropriate, because it is an initiative of the ABC and Choice. Isn't The Checkout fantastic? Isn't it your favourite program?! Nothing to do with the clip you are about to see!

(VIDEO SHOWN)

Alan Kirkland: That was an outrageous plug!So, we're here in this session to discuss some of the changes that will affect prices into the future and we're joined by three quite diverse and interesting speakers. From right to left, as you see them, Shara Evans, who is a futurist, commentator and founder and CEO of Market Clarity, a firm that does a lot of work in the industry. David Forman, senior manager of industry and policy for Macquarie telecom. And Nick McClintock, director of economic analysis within the Bureau of Communications Research. So please welcome them.

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Alan Kirkland: I'm keen to make sure we finish on time at 5:00 so we might just dive straight into the heart of the issue. I guess there are lots of things that are going to change in the future, and they have been the subject of discussion throughout the day, but I guess to sketch out our starting point in terms of price, I'm interested in your thoughts - we might start with you, Shara - on what role pricing plays now in consumer decisions about telco services?

Shara Evans: Well, price is fundamental. We can't get around that. And especially for consumers. Rod mentioned this in his speech - if it's not affordable, in other words if you don't have enough money to pay for something, it doesn't matter what the value is. One of the big trends, however, is in the whole value for money equation, product bundles are becoming more and more important for both businesses and consumers. One of the trends that I've been picking up on some of my research is the increasing availability of product bundles, particularly in the area of fixed line phone and fixed line broadband. What is surprising in some of the research I've done is that mobiles aren't part of the bundle - although you do have some options from providers to be able to get extra discounts if you add a mobile as part of your overall bill.

Another really interesting feature on the consumer side is the bundling of entertainment, as well. And interestingly, from and to - the Dodo brand and the Business Commander brand, interesting is the bundling of utilities now, electricity, gas and also moving into insurance, and I see that is an increasing trend as well. So I think that's probably my take on value for money and pricing.

Alan Kirkland: And from the industry side, David, how would you see pricing now?

David Forman: Well, I think you couldn't sit through sessions like today without agreeing that pricing is really at the core of accessibility. But it goes to issues beyond that, as well. It also shapes - pricing shapes the kinds of products that consumers will require and we look back to the relatively recent past and we see the change in consumer use of mobile devices, mobile phones, after the introduction of bucket plans that replaced timed mobile calls. Can you imagine how we would have been able to use phones in the way we use them today if we had not had that transition? That was led by a disruptive entrant into that marketplace. So the bundling of services needs to be watched very closely but I think we need to be conscious of the fact that they can be used by incumbents to change prices and make it more difficult for people to come in and disrupt mobile pricing as happened in, what was it, the early 2000s I guess.

AK?With some of the trends that Shara talked about, particularly I'm interested in the bundling of entertainment services. We're seeing it with music streaming services and now it's starting to come to Australia in terms of video streaming. Do you really see that as being a big part of the future? Is that what it's all going to be about? Are people increasingly going to be paying for a bunch of other services as part of acquiring a device?

SE? I think it will be a part of it. I looked at the top players in the industry a few months ago, so Telstra, Optus, iiNet, TPG and N2 and out of all the plans I looked at that included fixed broadband, 71% of their plans had entertainment as an option for the bundle. So, there's clearly money to be had there, or all these players wouldn't be moving into it. But what's interesting is the move that TPG made a few days ago in discontinuing Fetch TV from iiNet's offer. So I think there's more to play out here.

Alan Kirkland: It seems there is a lot of settling to happen in terms of those streaming services which will determine who the telcos play with in the future. David, does that sort of - how is that playing out in terms of how people think the value will be captured along the supply chain of the future?

David Forman: I think one of the things that will be observed with some interest are the kinds of mergers that Rod was discussing. There's no question that we have, in this country, an industry that's structured quite differently to a lot of other countries. If I can speak from the perspective of the competitive carriers coalition as opposed to Macquarie telecom, we have been concerned about leveraging the content to foreclose other markets. We have been concerned about that for years and we're not the only ones. The previous chairman of the ACCC spoke about that repeatedly as an issue. Rod has spoken about that directly or indirectly over the years. It's something we need to be constantly alive to and I would argue it's beyond time that we have a closer look at just how that's playing out in a more holistic way than having to address that on a version by version basis.

Rod also talked about, you know, the debate around pricing and prices generally being higher in Australia than in the rest of the world and I guess it gave us both sides of the argument but talked about population density being a significant issue.

Alan Kirkland: Do you think that's a fair argument and is that likely to change in the future? I mean, it is a gap, I guess, that's caused by our low population density - is that likely to narrow in the future as technology changes? Or Shara?

Shara Evans: Sure, I would jump into that one because I've done a lot of tracking work in infrastructure in Australia. Whether we like it or not, we have a lot of very densely populated areas where it's very efficient to serve people at a fairly low cost structure, especially with new optical transmission of 100 gigabytes per sayings, and so on, it's very efficient. But when it comes to laying out fibre or putting in mobile base stations across the entire country and serving a population that is not living in the densely populated areas, it's expensive and there's no way that we're going to get around it unless we get masses more people into this country which I doubt is going to happen in the near future, or somehow we manage to make civil infrastructure deployment really - and I don't think that's going to happen in the future, either.

Alan Kirkland: We might sort of pivot from, I guess, talking about - we have been talking about pricing in a homogenous kind of way, pricing for everyone, but I guess a lot of the other focus through the conference has been on affordability, so the fact that pricing isn't the same for everyone. Is that something that you have sort of looked at in your research, Nick, and the bureau's research? I guess the impact of affordability on the take-up of technology?

Nick McClintock: It's something we're starting to get into. We've got a project which we're calling the blockers and enablers project, which is looking to assess what are the barriers and the enablers of efficient communications markets and we looked at it in the context of value - so price as a subset of value. But that communications services, obviously, have other aspects to them, that people value, such as speed, such as throughput, or, as we've heard today, reliability being a key value point for consumers. So, the issue of affordability is one of the areas that we're finding is coming out a little bit more in the research. It's still early days. This is a project we only really kicked off in the last couple of months. But really, it's about that value proposition and understanding how much the - what consumers value and how that changes and trends over time. Thinking about it theoretically, you would expect that as offerings become more diverse that there would be an element of price perhaps not maintaining that level of importance to people.

I'm talking about that in generalities. There's going to be subsets of a community where that's going to be more important than others. But other aspects of the service may become prevalent, such as people looking to be able to access unlimited plans, being able to access unlimited throughput that will, you know, serve whatever needs they might have. You know, equally there is that reliability question. The need to have that service there when you need it and to have the integrity of the service there for you, for reasons which may be - disadvantage may be because you require that for a safety of life reason or whatever. You know, we're looking at these things and it is still early days in the project for us but it's something we're getting into. I guess Rod touched a little bit around how consumers become informed around issues like reliability. I guess I'm interested in the views of the panel around how well-equipped Australia is at the moment to help consumers to make those choices. If consumers are weighing up on the one hand price, price is possibly a little bit more transparent, although it is quite complicated to compare.

Alan Kirkland: But assuming it's easy, what about the other stuff around reliability? How well-equipped are we to help consumers to make decisions, to compare offerings based on the respective reliability?

Nick McClintock: Well, I think it is a truism that the greatest level of competition in the market, the greater the level of transparency. That becomes evident to consumers because people have an incentive to be competing with each other across a number of factors. I think - I don't think consumers are well served at the moment, in terms of the visibility they are having into the quality of the services that are available to them. And I think, frankly, that is a function of the market not being as competitive as it should be.

NMcCUnknown:If I can just jump in - the Harper Review of Competition Policy, you will have seen the press around the response and they focused on the Section 46 changes. One of the recommendations in that report, recommendation 21, related to informed choice and I think that was a really important recommendation that unfortunately didn't get any traction with the report. But it's something I'd really suggest it's worth going back to have a look at and something I really do think frames a lot of the dialogue going forward about the importance of enabling consumers to make the choices that best benefit them. Obviously, it's a recommendation and to implement something like that requires a lot of work, but I really do think it's something that would make enormous benefits to the community in the longer term if those sorts of initiatives, I think, were picked up and run with more generally.

SE Unknown:[LS1]I'll make an observation as well. Picking up on the comments that David made, you talked about quality of services - one of the things that is probably non-transparent to consumers and businesses are things like contention ratios on broadband plans. And I think that we could have a level of transparency beyond what is available today fairly easily if it were required that service providers say, "My contention level is X" and at least that way we would be able to compare, am I actually getting the same value for money per gigabyte from one organisation as opposed to another. It would help you to try and understand a little bit about the reliability, the quality of the services and the quality of the experience. And I'd also add in that it's important for people to understand the security with respect to their services, especially as we connect more and more devices in our household. And maybe we can touch on that later.

And privacy implications - what happens with your data? Who might get access to it?

AK: Shall we move to that issue of devices that you have just flagged? So, I mean, I gather it has been a fairly common theme that's occurred throughout the day, the trend of more devices per users. That has changed a lot in the last five years. If you project the same rate change and growth, what does that look like in five or ten years' time?

SE:If you look at the history you won't get anywhere near to what the future is going to be. Everything - and I mean literally everything - is going to be connected, underpinned by the IPV 6 addressing scheme. That allows 340 trillion, trillion, trillion devices to connect to the internet. In less than 10 years it's quite likely that a typical household will have more than 100 devices. There are people like Dr Marcus Weldon, who was speaking to me last year, the head of Bell Labs, and his estimate was individually we might have somewhere teen 100-200 devices. So the kinds of things I'm talking about are microwaves, refrigerators, TV, the Belkin switch that lets you connect your existing gadgets, toys like an interconnected Barbie, your cars are going to be connected, your garage door openers, your front door, even clothing is being designed with interwoven ICT circuits. We're going to see smart eyewear beyond anything you can imagine with glasses or Google Glasses. In seven years' time that might move to smart contacts and what we will look at is eyewear that combines biotech with ICT and serves a dual purpose, and do things like auto-focus for reading glasses. It will be able to monitor my glucose levels using information in my tear ducts. It is literally going to go bananas. Then we will have different categories of devices we will be connecting, everything from things in your kitchen, you will have 3D printing appliances in your kitchen that will literally talk to your smart fridge, figure out what you have in your pantry or fridge, find recipes on the internet, put the fresh ingredients in and low and behold it will come out like a Star Trek replica. We will see robots in Japan - they've just launched the first major humanoid-type robot as a service a couple of months ago. They designed a robot called Pepper and it is cute, humanoid-like and they priced it at around $1,600 and sold it with a three-year Cloud-based services plan plus a three-year maintenance plan. Put 1,000 units on the market - initially - and in one minute they had sold out. One minute. So you can just imagine what the future's going to hold.

Alan Kirkland: And what does it all mean, I guess? Nick, you do a lot of work around productivity - I mean is this stuff going to...

NMcC: Would you like me to answer that question for you?!

(LAUGHTER)

AK: But do you see productivity increases being associated with all of this stuff or is it just going to be more stuff, some of which is fun, some of which disappears, some of which we're still not really sure what it does.

Nick McClintock: I think we all innately know that this is going to lead to improvements in productivity. The problem we have is we actually don't know how, necessarily. We don't have - our - the reflection of ICT stats in productivity is really poor. The reflection of ICT stats more generally is really poor. The department and the ABS are currently most of the way through a joint effort to basically review the statistical coverage of ICT, which is due to report to government I think at the end of September and there has been a couple of rounds of consultation in that regard. And that reflects the fact that the way ICT stats are reported more generally is quite poor. How that relates to national productivity is even worse.

We're currently doing a project within the department looking at - and we've released a primer to this and that is on the website and I'm happy to provide that to anybody, if they like. We were looking to undertake two steps. First is growth accounting on selected sectors to try and understand exactly what are the productivity impacts from ICT, particularly in terms of labour productivity but also in terms of capital and ultimately NFP. The second stage is we're working with a private sector entity and a public sector entity in terms of a firm level analysis in order to understand from them how did ICT actually directly influence and improve their productivity and what were the complementary investments they made that assisted and how did that benefit their consumers and stakeholders, et cetera. That is a project we have going on which we hope to report on probably in the first quarter of next year. So in summation, I think we all know it's impacting on productivity. It's just we can't actually point to where. And I think that's half the battle and certainly something that is important in terms of this dialogue going forward about how we actually leverage off the advantages that ICT provides to us.